Creegan v. State

IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 111,082
JAMES M. CREEGAN, et al.,
Appellants,
v.
THE STATE OF KANSAS, et al.,
Appellees.
SYLLABUS BY THE COURT
1.
A Fifth Amendment taking occurs when a party with the power of eminent domain
deprives the owner of a property right. In order for the taking of an intangible property
right to be compensable in Kansas, it is not necessary that the property be physically
taken or for the property to be damaged within the meaning of K.S.A. 26-513(a).
2.
The violation of a restrictive covenant running with subdivision land by a party
with the power of eminent domain is a compensable taking of a private property interest
in real estate possessed by an owner of a dominant subdivision parcel, and that owner
may sue in inverse condemnation.
Review of the judgment of the Court of Appeals in an unpublished opinion filed January 23,
2015. Appeal from Johnson District Court; JAMES F. VANO, judge. Opinion filed March 24, 2017.
Judgment of the Court of Appeals reversing and remanding to the district court is affirmed. Judgment of
the district court is reversed and remanded with directions.
1
Douglas J. Patterson, of Property Law Firm, LLC, of Leawood, argued the cause, and Michelle
W. Burns and Kellie K. Warren, of the same firm, were with him on the brief for appellants.
Charles E. Millsap, of Fleeson, Gooing, Coulson & Kitch, L.L.C., of Wichita, argued the cause,
and Lyndon W. Vix, of the same firm, and Timothy P. Orrick and Paul Schepers, of Orrick & Erskine,
L.L.P., of Overland Park, and Barbara W. Rankin, chief counsel, of Kansas Department of
Transportation, were with him on the briefs for appellees.
Timothy P. Orrick, of Orrick & Erskine, L.L.P., of Overland Park, was on the brief for amici
curiae League of Kansas Municipalities, City Attorneys Association of Kansas, Kansas Association of
Counties, and Kansas Rural Water Association.
Christopher F. Burger, of Stevens & Brand, L.L.P., of Lawrence, was on the brief for amicus
curiae Westar Energy, Inc.,
The opinion of the court was delivered by
BEIER, J.: This is an inverse condemnation action brought by property owners in
the Grande Oaks subdivision in Overland Park to seek compensation from the State of
Kansas and the Kansas Department of Transportation (collectively KDOT) for violation
of restrictive covenants burdening subdivision property. KDOT obtained summary
judgment in defendants' favor in the district court, but a panel of the Court of Appeals
reversed. Creegan v. State, No. 111,082, 2015 WL 423835 (Kan. App. 2015)
(unpublished opinion).
Today, on KDOT's petition for review, we depart from the rationale of the Court
of Appeals but affirm its result. Violation of restrictive covenants can support the taking
of a compensable real property interest in an inverse condemnation action. And this case
must be remanded to district court to determine the amount, if any, of the just
compensation due to the plaintiffs.
2
FACTUAL AND PROCEDURAL BACKGROUND
The underlying facts of this case and its procedural history in the district court are
not in dispute. As the Court of Appeals set out those facts and history:
"Grande Oaks is a subdivision in Johnson County, Kansas. The plots within
Grande Oaks were made subject to a Declaration of Restrictions filed in the Register of
Deeds Office of Johnson County, Kansas, on June 22, 1978. In relevant part, the
Declaration of Restrictions stated that the property within Grande Oaks should be
occupied and used for single-family residence purposes only.
"In 1999, KDOT purchased a sizeable section of real property from Christ
Evangelical Lutheran Church of Lenexa, Kansas, Inc., which included land platted as lots
55 through 75 in Grande Oaks. In 2005, KDOT placed trailers on these lots and, in
subsequent years, used the lots for various construction activities. Eventually, KDOT
constructed permanent bridges and pavements on a number of the lots. The existing
traffic pattern currently utilizes these newly constructed facilities.
"In March 2012, Plaintiffs, who all owned real property in Grande Oaks, initiated
this lawsuit claiming inverse condemnation by Defendants. After some limited discovery,
Defendants filed a motion for summary judgment[,] arguing that violation of the
restrictive covenant in this case was not a compensable taking under Kansas law."
Creegan, 2015 WL 423835, at *1.
As the Court of Appeals noted, no transcript of the district court hearing on
summary judgment is included in the appellate record, but the record does contain a
memorandum decision issued by the district judge. It reads in pertinent part:
3
"In this case, Plaintiffs do not allege an actual, physical taking. Instead, they allege that
Defendant damaged their property by using its own property in violation of its deed
restrictions. . . .
"The watershed issue in this case, the claim from which all of the Plaintiffs'
theories of damages flow entirely[,] is the State's violation of the restrictive covenants
running with the land. Restrictive covenant compliance may be a contractual expectation,
an intangible property right of the Plaintiffs and every other property owner in the
subdivision. There is no dispute that the State has violated the restrictive covenants with
respect to the lots it owns through purchase. However, violation of the restrictive
covenants is not a physical taking. Some physical taking or substantial inevitable damage
resulting in a taking must be alleged and produced in evidence to support a claim for
inverse condemnation. The 'taking' alleged in this case is not a compensable taking at
all. . . .
....
". . . This trial court . . . will not create or expand the cause of action not
otherwise recognized under Kansas law.
....
". . . The Plaintiffs' case at bar pivots entirely upon the violation of restrictive
covenants burdening property owned by the State. In Plaintiffs' theory, damages flow
from the violation of the restrictive covenants. There is no evidence in this case of any
actual physical taking of the real property, or substantial or sustained and inevitable
physical damages to the real property amounting to a 'taking' of the real property owned
by the Plaintiffs.
"Defendant argues that Plaintiffs' only claim of damages is the alleged
diminution in the values of their respective properties, which are not compensable in an
inverse condemnation case. On the other hand, Plaintiffs argue that they have alleged
compensable damages. Plaintiffs alleged damages do not rise to the level of the taking
4
required for inverse condemnation. They are incidental to the primary claim upon which
the Plaintiffs rest, i.e., violation of the restrictive covenants. They are not compensable in
inverse condemnation.
"In response to Defendant's Motion for Summary Judgment, Plaintiffs have only
provided evidence of a diminution in value of their properties."
At the close of this discussion, the district judge granted summary judgment to the
defendants.
On appeal, a majority of the Court of Appeals panel ruled that restrictive
covenants are real property interests and that the damage done to those property interests
by KDOT's violation of the covenants required just compensation. 2015 WL 423835, at
*6. Judge G. Gordon Atcheson concurred in the majority's result, but he would have
treated restrictive covenants as a hybrid of real property interests and contract interests.
Under his design, compensation would be due only for violation of restrictive covenants
exhibiting the attributes of a real property interest. 2015 WL 423835, at *6 (Atcheson, J.,
concurring). Whether these attributes exist would have to be determined on a case-by-
case basis. According to Judge Atcheson, "[a] government entity takes the property
interests embodied in a restrictive covenant to the extent the nonconforming use to which
it puts restricted land creates or causes conditions that intrude upon privately owned land
subject to that same restriction." 2015 WL 423835, at *17 (Atcheson, J., concurring).
DISCUSSION
Because the district judge granted summary judgment to the defendants, we apply
the following standard of review:
5
"'Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as
a matter of law. The trial court is required to resolve all facts and inferences which may
reasonably be drawn from the evidence in favor of the party against whom the ruling is
sought. When opposing a motion for summary judgment, an adverse party must come
forward with evidence to establish a dispute as to a material fact. In order to preclude
summary judgment, the facts subject to the dispute must be material to the conclusive
issues in the case. On appeal, we apply the same rules and where we find reasonable
minds could differ as to the conclusions drawn from the evidence, summary judgment
must be denied. [Citations omitted.]' Shamberg, Johnson & Bergman, Chtd. v. Oliver,
289 Kan. 891, 900, 220 P.3d 333 (2009)." Fawcett v. Oil Producers, Inc. of Kansas, 302
Kan. 350, 358-59, 352 P.3d 1032 (2015).
The issue of law at the heart of this case is whether there has been a compensable
taking of a private interest in real property. See Estate of Kirkpatrick v. City of Olathe,
289 Kan. 554, 559, 215 P.3d 561 (2009) (citing Korytkowski v. City of Ottawa, 283 Kan.
122, 128, 152 P.3d 53 [2007]). An issue of law is reviewable de novo on appeal. See
Platt v. Kansas State University, 305 Kan. 122, 126, 379 P.3d 362 (2016).
"This court has long recognized that 'the right to take private property for a public
use is inherent in the state.'" 289 Kan. at 558 (quoting State, ex rel. v. Urban Renewal
Agency of Kansas City, 179 Kan. 435, 438, 296 P.2d 656 [1956]). But that power is
limited by both federal and state law.
Both the federal and state Constitutions address takings for public use. The Fifth
Amendment to the United States Constitution provides that "private property [shall not]
be taken for public use, without just compensation." Article 12, Section 4 of the Kansas
Constitution provides that "[n]o right of way shall be appropriated to the use of any
corporation, until full compensation therefor be first made in money, or secured by a
6
deposit of money, to the owner, irrespective of any benefit from any improvement
proposed by such corporation." See also Kirkpatrick, 289 Kan. at 558; Hiji v. City of
Garnett, 248 Kan. 1, 12, 804 P.2d 950 (1991) (both constitutional provisions "guarantee
payment for private property appropriated to public use").
In addition, the Kansas Eminent Domain Procedure Act (EDPA) sets out
procedures for condemnation of interests in real property. K.S.A. 26-501 et seq. EDPA's
repeated references to "real estate," "real property," "lots," "parcels," "tracts," "land," and
"interests" therein, as well as to "landowners," make the focus of its procedural directives
on only real property and interests tied to real property clear. See K.S.A. 2016 Supp. 26-
501(b) ("real estate"); K.S.A. 2016 Supp. 26-501(c)(2) (definition of "taking" includes
"any interest in private real property"); K.S.A. 26-502 ("each lot, parcel or tract of land");
K.S.A. 2016 Supp. 26-503 ("lands"); K.S.A. 2016 Supp. 26-504 ("real estate," "lots and
parcels"); K.S.A. 2016 Supp. 26-505(4), (5) ("land taken and damages resulting from
such taking," "subject real estate"); K.S.A. 2016 Supp. 26-506 ("lands . . . tracts of which
the lands are a part"); K.S.A. 2016 Supp. 26-507(a), (b) ("tracts," "title, easement or
interest appropriated in the land condemned," "tracts"); K.S.A. 2016 Supp. 26-508
("damages to all interests in the tract"); K.S.A. 26-509 ("landowners"); K.S.A. 26-512
("upon the land"); K.S.A. 26-513(b), (c), (d)(6-11) ("entire tract," "part of a tract of land
or interest is taken," "tract," "land," "taking of land"); K.S.A. 26-517 ("real property");
K.S.A. 2016 Supp. 26-518 ("real property").
In its real property limitation, EDPA is narrower than the plain language of the
federal Takings Clause, which extends to all "private property." But this court has
recognized that EDPA is substantively broader than the plain language of the federal
constitutional provision in at least one respect: EDPA makes not only takings but also
damage to real estate or an interest in it compensable. See K.S.A 26-513(a) (Property
7
"shall not be taken or damaged for public use without just compensation. [Emphasis
added.]); Kirkpatrick, 289 Kan. at 559.
Ordinarily an eminent domain proceeding is initiated by the condemning authority
to determine the extent of a taking and the compensation due. Kirkpatrick, 289 Kan. at
558-59. In contrast, an inverse condemnation action such as this is initiated by a property
owner alleging that an interest in property has been taken for public use without a formal
condemnation proceeding. 289 Kan. at 559. The same rules apply to determine the right
to damages and their measure in both actions. Brock v. State Highway Commission, 195
Kan. 361, Syl. ¶ 3, 404 P.2d 934 (1965), disapproved of on other grounds Hales v. City
of Kansas City, 248 Kan. 181, 184, 804 P.2d 347 (1991).
The three traditional elements for eminent domain or inverse condemnation are:
(1) a private property interest (2) taken (3) for public use. See Stoebuck, Nontrespassory
Takings in Eminent Domain, 19-20 (1977). If each element is present, just compensation
must be paid. In this inverse condemnation case, there is no contest over the existence of
the third element of public use and we therefore will not examine it. On the first and
second elements, the parties have largely talked past each other.
The plaintiffs, for their part, have focused most of their effort on the first element
of whether a private property interest, specifically, a private real property interest,
existed. They argue at length that the restrictive covenant in the Grande Oaks Declaration
of Restrictions gave rise to a real property interest rather than a mere contract interest
and, assuming that, the facts make KDOT's taking of that interest a given.
For their part, KDOT has placed their chief emphasis on whether there was a
"taking." But KDOT does not focus on a traditional taking in the sense of transfer of legal
title. Instead, they understand this case to concern EDPA's more expansive allowance of
8
an award for "damage" to plaintiffs' real property. See K.S.A. 26-513(a) ("Private
property shall not be taken or damaged for public use without just compensation.").
Under Kirkpatrick's interpretation of EDPA, KDOT argues, the public use to which they
have put their own subdivision parcels must have caused inevitable and substantial
physical damage to plaintiffs' subdivision parcels before plaintiffs can recover in inverse
condemnation.
In essence, the Court of Appeals majority focused first on the plaintiffs'
formulation of the issues before it and then on KDOT's, but it ruled in plaintiffs' favor on
both.
First, on the question of whether an interest in real property existed, the panel
majority noted a prior panel's decision in Board of Reno County Comm'rs v. Asset Mgmt.
& Marketing L.L.C., 28 Kan. App. 2d 501, 18 P.3d 286 (2001):
"In that case, Reno County purchased land in a subdivision that was burdened by a
restrictive covenant limiting it to single-family residential use. After purchasing the land,
Reno County adopted a resolution authorizing it to build a water tower on the land. After
the resolution passed, the subdivision landowners conveyed their intention to seek an
injunction to prevent the county from building the water tower. In anticipation of the
landowners' request for an injunction, Reno County filed a petition for a declaratory
judgment seeking a declaration from the court that construction of the water tower did not
violate the restrictive covenants and that an injunction would cause economic loss. In
their answer to the petition, the landowners generally denied the allegations and, as Reno
County anticipated, filed a counterclaim seeking an injunction to prevent construction.
"After an evidentiary hearing, the trial court determined that building the water
tower violated the restrictive covenant. But because Reno County's petition sought a
declaration from the court on the landowner[s'] request for an injunction to prevent
construction of the water tower, the trial court analyzed the issue using principles of
9
equity. See Smith v. State, 264 Kan. 348, 355, 955 P.2d 1293 (1998) (injunction is an
equitable remedy designed to prevent irreparable injury by prohibiting or commanding
certain acts). In weighing the equities, the trial court found the existing water system was
insufficient for peak usage periods and questionable for purposes of fire protection. In
support of its decision to grant judgment in favor of Reno County and deny the
landowners' request for an injunction, the trial court concluded that '"grant[ing] an
injunction in this case would not be equitable or just. The public interest in this case will
be best served if the proposed water tower is constructed as planned."' Asset Mgmt. &
Marketing L.L.C., 28 Kan. App. 2d at 503.
"A panel of this court affirmed the decision, finding the landowners failed to
provide evidence that they would face irreparable injury if the water tower were built, a
necessary element of an injunction request. Relevant to the issue before us in this case,
the court further found injunctive relief inappropriate because a full, complete, and
adequate remedy at law was available to the landowners:
'There is nothing which would prevent appellants from initiating
an inverse condemnation proceeding. Appellants claim that it is not a full
remedy because it would be unfair to force private landowners to suffer
the burden and expense of filing an inverse condemnation claim.
However, the law does not require that landowners be given the most
expedient remedy.' 28 Kan. App. 2d at 507.
"Of course, implicit within the court's finding that there was nothing to prevent the
landowners from filing an inverse condemnation proceeding is the legal conclusion that a
subdivision restrictive covenant represents an interest in real property entitled to eminent
domain protection." (Emphasis added.) Creegan, 2015 WL 423835, at *2-3.
The Court of Appeals majority then noted a prior panel's decision in Persimmon
Hill First Homes Ass'n v. Lonsdale, 31 Kan. App. 2d 889, 75 P.3d 278 (2003), which
involved a restrictive covenant dispute between private parties. That decision had cited
language from a Georgia case approvingly: "'[T]he violation of a restrictive covenant
10
that is part of the development scheme affects the grantor and all other grantees, causing
irreparable harm to the value of their respective property interests, because such
restrictive covenant was part of the valuable contract consideration given and relied upon
in the conveyance of land.'" Persimmon Hill, 31 Kan. App. 2d at 895 (quoting Focus
Entertainment v. Partridge Greene, 253 Ga. App. 121, 127, 558 S.E.2d 440 [2001]).
And, finally, in ruling that a real property interest rather than a mere contract
interest existed, the panel majority relied upon this court's recognition that an oral
promise limiting the use of purchased real property created an "'interest in real estate'"
covered by the statute of frauds. Creegan, 2015 WL 423835, at *3 (quoting Cooper v.
RE-MAX Wyandotte County Real Estate, Inc., 241 Kan. 281, 290, 736 P.2d 900 [1987]).
Turning to KDOT's question of whether there had been a taking by KDOT, the
Court of Appeals majority relied on Kirkpatrick's rubric for whether "damage" to real
property in the neighborhood of condemned property was sufficient to be compensable.
In that case, which involved flooding, i.e., physical damage, to the real property owned
by the plaintiff, we required that actionable damage be "(1) a result of government action
carried out for public benefit and (2) substantial in nature." Creegan, 2015 WL 423835,
at *4 (citing Kirkpatrick, 289 Kan. at 569). Rejecting KDOT's arguments that violation of
the restrictive covenant at issue in this case was merely tangential or incidental and that it
resulted in only a noncompensable diminution in the value of the plaintiffs' parcels, the
majority ruled that there had been a permanent deprivation of the plaintiffs' right to
enforce the restrictive covenant. That "damage" was sufficient to be a "damage" under
EDPA. 2015 WL 423835, at *5-6.
The Court of Appeals majority also rejected KDOT's arguments based on public
policy, arguments that focused on administrative inconvenience and cost as well as the
possibility of subdivision landowner collusion to drive up eminent domain or inverse
11
condemnation awards. The majority discounted those arguments, emphasizing that such
concerns must bend to the requirement of just compensation under the Fifth Amendment.
See 2015 WL 423835, at *5.
Judge Atcheson's concurrence argued that the majority's reasoning was
inadequately supported by Asset Mgmt., Persimmon Hill, and Cooper. He suggested an
alternative hybrid approach to the property interest question, proposing that some
restrictive covenants be treated as compensable property interests and some as
noncompensable contract interests. The determination would be made on a case-by-case,
property-by-property basis. 2015 WL 423835, at *6-8 (Atcheson, J., concurring). An
inverse condemnation plaintiff must show that a nonconforming use "creates or causes
conditions" intruding upon the plaintiff's privately owned land and that "[t]he intrusion
must be measurable in some sensory way and not merely the product of an entirely
subjective aesthetic aversion to the use." 2015 WL 423835, at *17 (Atcheson, J.,
concurring). Because Judge Atcheson ultimately characterized the plaintiffs' property
interests in this case as "the quiet enjoyment of a single-family residence flanked by other
single-family residences," he was willing to remand for determination of the amount of
just compensation due. 2015 WL 423835, at *17 (Atcheson, J., concurring.)
Clarification of the Question Before Us
As discussed below in more detail, both parties and the members of the Court of
Appeals panel have mistakenly concentrated on the potential applicability of EDPA's
language about damage to plaintiffs' subdivision parcels to the unfortunate exclusion of a
more traditional "taking" analysis. This approach has led to confusion on the question
actually before us. In fact, we are far less concerned with whether there was physical
damage to the parcels owned by plaintiffs than with whether their right to a certain
amount of legal control over use of the parcels owned by KDOT was vaporized. This
12
right, possessed by plaintiffs as a function of the restrictive covenant governing all
subdivision parcels, was one of the "sticks" in the valuable "bundles of sticks" they paid
for when they acquired their land. See In re Equalization Appeal of Prieb Properties, 47
Kan. App. 2d 122, 130, 275 P.3d 56 (2012) (ownership of fee simple interest equivalent
to ownership of complete bundle of sticks that can be privately owned).
This means that the language in EDPA about damage should not be our primary
analytical focus; this is not merely a case of statutory interpretation or construction. We
may look to state law to define the nature of plaintiffs' interest. See Phillips v.
Washington Legal Foundation, 524 U.S. 156, 164, 118 S. Ct. 1925, 141 L. Ed. 2d 174(1998); see also Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001, 104 S. Ct. 2862, 81
L. Ed. 2d 815 (1984) (property interests not created by Constitution; property interests
created, their dimensions defined by existing rules, understandings stemming from
independent source such as state law) (quoting Webb's Fabulous Pharmacies, Inc. v.
Beckwith, 449 U.S. 155, 161, 101 S. Ct. 446, 66 L. Ed. 2d 358 [1980], and Board of
Regents v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 33 L. Ed. 2d 548 [1972]). But we are
not limited to the "damage" language of EDPA or Kirkpatrick's interpretive gloss on it.
Rather, we must examine the character of restrictive covenants in Kansas and the rights
they produce and protect for owners of the land with which they run. We also are not
concerned with whether KDOT's actions constitute a permissible taking under EDPA.
The question is whether there has been a taking requiring just compensation under the
federal Constitution. Regardless of what types of takings the legislature has authorized
under EDPA, we are concerned with whether the plaintiffs' Fifth Amendment right to just
compensation is being infringed. Cf. K.S.A. 2016 Supp. 26-501a (generally prohibiting
use of eminent domain for purpose of transferring property to private entity).
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The Character of the Restrictive Covenant
A restrictive covenant is "[a] private agreement, [usually] in a deed or lease, that
restricts the use or occupancy of real property, [especially] by specifying lot sizes,
building lines, architectural styles, and the uses to which the property may be put."
Black's Law Dictionary 445 (10th ed., 2014). A restrictive covenant is generally
enforceable in equity in the form of a restraining injunction against the violation of the
covenant or a mandatory injunction directing removal of a nonconforming structure
already erected. See 20 Am. Jur. 2d Covenants, Conditions, and Restrictions § 262; see
also South Shore Homes Ass'n v. Holland Holiday's, 219 Kan. 744, 753, 549 P.2d 1035(1976) (ability to enforce covenant in equity persists only so long as there has not been
change in character, conditions of neighborhood that neutralizes benefits of covenant,
destroys its purpose). An enjoining party is generally not required to demonstrate
damages caused by violation of a covenant in order to enforce the covenant through
injunction. See Clark v. Vaughan¸ 131 Kan. 438, 443, 292 P. 783 (1930); see also
Persimmon Hill, 31 Kan. App. 2d at 894 (quoting 20 Am. Jur. 2d, Covenants, Conditions,
and Restrictions § 277). Moreover, the granting of equitable relief does not extinguish the
right to sue for future violations.
"Except when failure to enforce servitudes in common-interest communities or
general-plan developments provides the basis for modification or termination due to
changed conditions . . . property owners . . . may enforce the servitudes against
subsequent similar violations by the same or different parties unless, under the
circumstances then prevailing, enforcement would be unreasonable or inequitable."
(Emphasis added.) Restatement (Third) of Property (Servitudes) § 8.3(2) (2000).
Although Kansas does not have a case directly on point, the general rule is that a
party also can recover monetary damages for breach of a restrictive covenant.
14
"The usual measure of damages for the breach of a covenant is compensation for the
actual loss suffered by reason of the breach. In a typical action for breach of a real-estate
covenant, the measure of damages is the amount that will compensate the injured party
for the loss that fulfillment of the contract could have prevented or the breach of it has
entailed; the chief concern is to make the plaintiff whole and to secure to the plaintiff his
or her rights under the contract." 20 Am. Jur. 2d Covenants, Conditions, and Restrictions
§ 272 (Measure of Damages).
See also Restatement (Third) of Property (Servitudes) § 8.3 (2000) ("A servitude may be
enforced by any appropriate remedy or combination of remedies, which may include
declaratory judgment, compensatory damages, punitive damages, nominal damages,
injunctions, restitution, and imposition of liens.").
The language of the Grande Oaks subdivision's Declaration of Restrictions at issue
here could not be more simple or straightforward: "The property . . . shall be occupied
and used for single-family residence purposes only . . . . The provisions of this
Declaration shall be deemed to be covenants running with the land . . . ." Both the
plaintiffs and KDOT's predecessor in interest purchased their parcels subject to the
single-family residence limitation.
Thus they acquired the benefits and burdens the covenant embodies.
The Nature of the Plaintiffs' Interests
The plaintiffs have expended a great deal of energy before the Court of Appeals
and before us, arguing that a restrictive covenant creates a real property interest subject to
condemnation and compensation, as opposed to a mere contract right not subject to
condemnation and compensation. In addition to their reliance on the Asset Mgmt. passage
quoted by the Court of Appeals majority, 28 Kan. App. 2d at 507, they have urged us to
15
follow what appears to be the clear majority view from our sister jurisdictions. The
plaintiffs have cited Annot. Eminent Domain: Restrictive Covenant or Right to
Enforcement Thereof as Compensable Property Right, 4 A.L.R.3d 1137, and have
particularly relied upon cases from Maryland, New Mexico, Connecticut, and California
as supportive of elements of that view. See Southern Cal. Edison Co. v. Bourgerie, 9 Cal.
3d 169, 172-73, 507 P.2d 964 (1973) (building restrictions constitute compensable
property); Town of Stamford v. Vuono, 108 Conn. 359, 143 A. 245, 249 (1928) (land use
restrictions "are in the nature of an easement constituting an interest in the land upon
which they are imposed"); Electro-Nucleonics, Inc. v. Washington Suburban Sanitary
Com'n, 315 Md. 361, 367, 554 A.2d 804 (1989) (covenant running with land ordinarily
compensable property interest in condemnation context, at least to extent it adds
measurable value to land to which attached); Montoya v. Barreras, 81 N.M. 749, 751,
473 P.2d 363 (1970) ("Restrictions as to the use of land are mutual, reciprocal, equitable
easements in the nature of servitudes . . . and constitute property rights which run with
the land.").
The plaintiffs also have directed our attention to Restatement (First) of Property
§ 566, comment b (1944) for the proposition that "condemnation of land subject to the
obligation of a promise respecting its use in such manner as to extinguish the interest in
the land created by the promise" means that "compensation must be made to those
entitled to the benefit of the promise," and to 2 Nichols on Eminent Domain § 5.15[1]
(now at 5.07[4] [3d 2016]) for the idea that restrictive covenants constitute equitable
easements on the land restricted, and to Stoebuck, Condemnation of Rights the
Condemnee Holds in Lands of Another, 56 Iowa L. Rev. 293, 301-02 (1970) to
demonstrate that loss to the owner of a dominant parcel occurs when an entity with the
power of eminent domain acquires a subservient parcel for use in some way violating a
restrictive covenant.
16
For their part, as alluded to above, KDOT has not meaningfully contested that
plaintiffs' rights to enforce the restrictive covenants on the KDOT parcels qualified as
interests in real property. They have instead confined their most insistent argument to the
significance of what they insist is a lack of any legally cognizable physical damage to
plaintiffs' subdivision parcels under Kirkpatrick. They assert that EDPA and Kirkpatrick
must be read to make the violation of the restrictive covenant before us today tangential,
incidental, and noncompensable.
Each side is minimally helpful.
Regarding plaintiffs' arguments, although they are persuasive on their point, their
point is irrelevant. It is by no means clear why the distinction between a real property
interest and a contract right should be ceded so much power, because it makes no
difference under the Fifth Amendment.
The United States Supreme Court has long recognized that "[a] contract is
property, and, like any other property, may be taken under condemnation proceedings for
public use." Long Island Water Supply Co. v. Brooklyn, 166 U.S. 685, 690, 17 S. Ct. 718,
41 L. Ed. 1165 (1897); see also Lynch v. United States, 292 U.S. 571, 579, 54 S. Ct. 840,
78 L. Ed. 1434 (1934) ("Valid contracts are property, whether the obligor be a private
individual, a municipality, a state, or the United States. Rights against the United States
arising out of a contract with it are protected by the Fifth Amendment."); Penn. Coal Co.
v. Mahon, 260 U.S. 393, 414-15, 43 S. Ct. 158, 67 L. Ed. 322 (1922) (recognizing
mineral rights as property right requiring compensation for taking); United States v.
Welch, 217 U.S. 333, 339, 30 S. Ct. 527, 54 L. Ed. 787 (1910) (easement property subject
to compensation requirements for taking under Fifth Amendment); Cammeyer v. Newton,
94 U.S. 225, 234, 24 L. Ed 72 (1876) (patent private property requiring just
compensation for use without consent); 26 Am. Jur. 2d, Eminent Domain § 96
17
("Contracts and contract obligations are property, and as such, they may be condemned.
A contract is a property right which may be condemned for just and adequate
compensation."); Stoebuck, Nontrespassory Takings in Eminent Domain, 133 (1977)
("Even if one concedes the label 'contract rights,' that proves nothing, for it has long been
recognized that contract rights, specifically those pertaining to land, are property for
eminent-domain purposes.").
The problem with KDOT's argument, on the other hand, is that it requires an
overread of Kirkpatrick.
EDPA, no matter its virtues, cannot be the be-all and end-all on the substance of
eminent domain and inverse condemnation law in Kansas. It may expand upon but cannot
constrict any rights Kansans are guaranteed by the Fifth Amendment. No matter how this
court may interpret or construe the statutory language, the constitutional provision
trumps.
"Even though fundamental principles of State property law may define property rights,
the Takings Clause nevertheless limits a State's authority to redefine preexisting property
rights. Thus, 'a State, by ipse dixit, may not transform private property into public
property without compensation,' Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449
U.S. 155, 164, 101 S. Ct. 446, 66 L. Ed. 2d 358 (1980), nor can it 'sidestep the Takings
Clause by disavowing traditional property interests long recognized under state law,'
Phillips, 524 U.S. at 167, 118 S. Ct. 1925." Washlefske v. Winston, 234 F.3d 179, 183-84
(4th Cir. 2000).
We see some of the same sort of confusion about the breadth of the Fifth
Amendment's protection in cases from other jurisdictions. To the extent that other
jurisdictions have held that restrictive covenants are not property interests for Fifth
Amendment purposes, they generally have done so under the erroneous assumption that a
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property interest must be an interest in land for a Constitution-based taking to occur. See
Anderson v. Lynch, 188 Ga. 154, 160, 3 S.E.2d 85 (1939) ("The most that can be said is
that the restrictive covenants on which they rely are enforceable as between the parties
thereto and their successors with notice. They do not convey an interest in the land."
[Emphasis added.]); see also Moses v. Hazen, 69 F.2d 842, 844 (D.C. Cir. 1934)
(restrictive covenants "are not truly property rights, but contractual rights, which the
government in the exercise of its sovereign power may take without payment of
compensation").
Both the Court of Appeals majority and Judge Atcheson were led astray by the
plaintiffs' and other jurisdictions' misdirected focus on whether a restrictive covenant
gives rise to a real property interest or merely a contract right. We agree with Judge
Atcheson's direct point and the panel majority's implicit point that no previous Kansas
case has directly answered the question. And a hasty review of our opinion in Kirkpatrick
might lead to a conclusion that eminent domain applies only to real property interests,
because it stated that "items of personal property are not compensable in condemnation
actions unless the property is a fixture." Estate of Kirkpatrick v. City of Olathe, 289 Kan.
554, 568, 215 P.3d 561 (2009) (citing City of Wichita v. Eisenring, 269 Kan. 767, 783,
7 P.3d 1248 [2000]). But the prohibition on compensating for losses to personal property
is merely a reference to situations in which the State has attempted to condemn the land
on which the property rests. See Eisenring, 269 Kan. at 783 ("Generally, the value of
personal property is not included in the value of the land unless the property is a fixture."
[Emphasis added.]); see also Kirkpatrick, 289 Kan. at 568 ("In either case, the reason for
the exclusion is that damage to personal property is not part and parcel to the
condemnation of the real estate in question, but rather is a tangential consequence of that
condemnation."). And a restrictive covenant is not personal property. It is an interest born
of real property ownership. Plaintiffs acquired an interest in controlling the use of
KDOT's subservient parcels by virtue of their purchase of their own dominant parcels.
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The bottom line is that it matters not whether the right held by plaintiffs under the
restrictive covenant in this case is further identified as a real property interest or a
contract right. For purposes of eminent domain—and, by extension, inverse
condemnation—each is "property" requiring just compensation under the Fifth
Amendment if taken by the State. See also Restatement (Third) of Property (Servitudes)
§ 2.18, comment h (2000) ("The power of eminent domain can be used to condemn
servitudes, imposing the burden on the private landowner for the benefit of the public at
large, or the condemning entity."); Restatement (Third) of Property (Servitudes) § 1.1
(2000) ("A servitude is a legal device that creates a right or an obligation that runs with
land or an interest in land.").
KDOT's Violation of the Covenant
KDOT has insisted that the essential issue in this case is
"not whether restrictive covenants constitute property rights vis-à-vis owners of other lots
subject to those restrictions or vis-à-vis a governmental entity utilizing lots for a public
purpose in contravention of the restrictions. Rather, the question is whether violation of
restrictive covenants by a public entity requires compensation under the Kansas EDPA."
KDOT has begun its argument with the self-evident proposition that cases from
other jurisdictions, regardless of number or rationale, are not controlling; and it has then
stated that the result here should be determined "by whether the provisions of the EDPA
indicate a legislative intent for a violation of a restrictive covenant to give rise to a
compensable claim."
We have previously explained that KDOT's exclusive dependence on EDPA for
substantive law and both parties' and the Court of Appeals' total reliance on arguments
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about the presence or absence of physical damage are misguided. We did use the
language "physical takings of property interests" in Kirkpatrick, but we did so only to
distinguish between a compensable "taking" based on damages to property under EDPA
and a compensable "taking" based on a more traditional transfer of a property interest
from the property owner to the condemning authority—i.e., a transfer of legal title. See
Kirkpatrick, 289 Kan. at 560-61 ("The conclusion that compensation is only required
where a transfer of property rights has occurred or where property damage is needed to
complete a public improvement project is not based in the language of the EDPA."). In
fact, a physical taking is not inevitably required. See Ventures in Property I v. City of
Wichita, 225 Kan. 698, 708-09, 594 P.2d 671 (1979) (recognizing national trend toward
conclusion that direct physical invasion of property not required under Fifth Amendment
for property owner to be entitled to compensation; pervasive regulation, zoning
restricting owner's reasonable use of the real property result in compensable taking). The
protections of eminent domain extend beyond tangible property and include protection of
intangible types of property such as patents, mineral rights, and contract rights. Limiting
eminent domain to tangible property is akin to what one court has recognized as "[t]he
early popular notion" that there is "'no taking without a touching.'" State Through DOTD
v. Chambers Inv. Co., 595 So. 2d 598, 601 (La. 1992). Compare Callender v. Marsh, 18
Mass. 418 (1823) (no compensation for blocking of abutting owner's street access) with
Gardner v. Village of Newburgh, 2 Johns. Ch. 162, 167 (N.Y. 1816) (allowing
compensation to riparian owner whose water level lowered by municipal action). Indeed,
our legislature has recognized more modern protection of intangible rights arising out of
real property ownership by including numerous references to "interests" in land in EDPA.
See K.S.A. 2016 Supp. 26-501(c)(2); K.S.A. 26-502; K.S.A. 2016 Supp. 26-506; K.S.A.
2016 Supp. 26-507(a); K.S.A. 2016 Supp. 21-508(a); K.S.A. 26-513(c).
At oral argument, KDOT's counsel willingly conceded that KDOT's
nonconforming use of its subdivision parcels extinguished plaintiffs' restrictive covenant
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as to those parcels—i.e., plaintiffs' interests in real property were destroyed—and would
continue to do so at least as long as KDOT continues to own the parcels. In theory,
another party could someday purchase the KDOT parcels and might stop the
nonconforming use. But, for all practical purposes, KDOT's violation of the covenant is
permanent as to these plaintiffs. Plaintiffs' have been deprived of all economic value of
their right of control under the covenant; their property interests, in this case, real
property interests, have been taken. See Stoebuck, Nontrespassory Takings in Eminent
Domain, 19 (1977) ("In most cases [a taking] means that a property interest has been
transferred from an owner to an entity having the power of eminent domain."); 26 Am.
Jur. 2d, Eminent Domain § 9 ("A finding of a taking requiring just compensation depends
on whether someone has been deprived of the economic benefits of ownership, not
whether the State captures any of those benefits.").
Just Compensation and Public Policy
Given the holdings above, we must remand to the district court for determination
of the amount of "just compensation" due to plaintiffs. There are two possible
components to each plaintiff's award that must be considered on remand.
The first component is intended to compensate plaintiffs for any qualifying
damage caused to their parcels by the nonconforming use. In order to recover, plaintiffs'
proof will have to meet the requirements of EDPA, as interpreted in Kirkpatrick. See
K.S.A. 26-513(a); Kirkpatrick, 289 Kan. at 569 ("damage must be substantial and must
be the planned or inevitable result of government action undertaken for public benefit").
The parties have disagreed during this appeal on whether plaintiffs can muster such proof
or have already failed when called upon to come forward with it. The record does not
definitively settle this question for us, and we leave it to our able district court colleague
to sort out this disagreement on remand.
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The second component should compensate plaintiffs for the taking of their rights
to control the use of KDOT's parcels under the restrictive covenant. KDOT admits those
rights were effectively extinguished by its nonconforming use, which, we have
established, was a taking of one "stick" in each plaintiff's "bundle of sticks." The value of
each plaintiff's right of control under the covenant has nothing to do with the desirability
or lack of desirability of the particular public use; it is the value of the right of legal
control involuntarily forfeited. It is equal to the difference between the fair market value
of the dominant estate with the restrictive covenant intact and the fair market value of the
dominant estate with the restrictive covenant taken. See K.S.A. 26-513(c).
"If only a part of a tract of land or interest is taken, the compensation and
measure of damages is the difference between the fair market value of the entire property
or interest immediately before the taking, and the value of that portion of the tract or
interest remaining immediately after the taking." K.S.A. 26-513(c).
This will account for removal of the restrictive covenant "stick" from each plaintiff's
"bundle of sticks." See Annot. Eminent Domain, 4 A.L.R.3d 1141 ("Once the theoretical
right to compensation for the loss of a negative easement is recognized, the problems of
the action are substantially the same as in any other eminent domain proceeding.
Practically, the property owner must establish the value of the right taken, at the time of
the taking, by competent lay or expert testimony. . . . [C]ounsel for the condemning
authority may have some hope of escaping substantial liability by attacking the proposed
proof of value and urging that at most nominal damages should be allowed.").
KDOT and the amici have also advanced several public policy arguments that are
consistent with the rationales of jurisdictions holding that restrictive covenants are
noncompensable contract rights. These arguments can be summarized as follows: (1)
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acknowledging restrictive covenants as property for purposes of eminent domain would
inhibit governmental bodies from performing their functions, (2) compensation for
restrictive covenants would be too expensive and procedurally cumbersome, especially
for subdivisions with a large number of lots, and (3) property owners colluding to create
compensation through eminent domain either in anticipation of an imminent taking or
through a covenant may prohibit governmental improvement projects. See Stoebuck,
Nontrespassory Takings in Eminent Domain, 133-38 (1977).
We see these arguments as logically flawed and overstated. For example, the
existence of private property interests do not prevent the exercise of eminent domain;
they merely require the payment of just compensation when the private property interests
are extinguished for public use. But we need not further address these policy arguments
today. It is sufficient to say that the ultimate arbiters of public policy wisdom are the
citizens whose Fifth Amendment rights are vindicated by our ruling. If those arbiters
decide to change the public policy animating the amendment, they are free to do so.
CONCLUSION
For the reasons discussed above, we affirm the result of the Court of Appeals'
decision and reverse and remand this case to the district court for further proceedings.
BILES, J. not participating.
MICHAEL J. MALONE, Senior JUDGE, assigned.1
1
REPORTER'S NOTE: Senior Judge Malone was appointed to hear case No. 111,082
vice Justice Biles under the authority vested in the Supreme Court by K.S.A. 20-2616.
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